CIPS Pan African Conference

Transcription

1 CIPS Pan African Conference Procurement and Executive level alignment how procurement is becoming a strategic advisor to internal stakeholders The Eskom journey & experience May 2013 The strategic role of professional procurement in the development of Africa

2 Contents Eskom Overview - Quick Facts & Figures Procurement Positioning - Context Centres of Excellence - the evolution of a new aligned organisation Operating Model and business partnering as a strategic advisor Some tangible benefits of an aligned organisation Concluding recommendations

3 Introducing Eskom our purpose, core business and values PURPOSE To provide sustainable electricity solutions to grow the economy and improve the quality of life of people in South Africa and in the region OUR CURE BUSINESS core business is electricity covering GENERATION, TRANSMISSION, DISTRIBUTION and TRADING thereof OUR VALUES ZERO HARM INTEGRITY INNOVATION SINOBUNTU (caring) CUSTOMER SATISFACTION EXCELLENCE

4 Key facts about Eskom Ownership, Sales, Workforce, Capacity, Credit Rating and Customer view Strategic 100% state-owned electricity utility, strongly supported by the government Supplies approximately 95% of South Africa s electricity and more than 40% of Africa s electricity For the six months ended 30 September 2012: Electricity sales of GWh (2011: GWh) and electricity revenues of R71.9bn (2011: R63.1bn) As at 30 September 2012: group employees (September 2011: ) 4.9 million customers (September 2011: 4.7 million) Net maximum generating capacity of 41.7GW (September 2011: 41.3GW) km of cables and power lines Moody s and S&P ratings: Baa3 and BBB respectively with a negative outlook 17.1GW of new generation capacity by 30 September 2018, of which 5.8GW already commissioned Eskom electricity sales by customer for the six months ended 30 September 2012 (2011) Commercial and agricultural Rail 1.4%, (1.3%) 43.0%, (42.1%) Municipalities 6.5%, (6.0%) Mining 14.7%, (14.5%) Residential 4.9%, (4.8%) Foreign 6.5%, (5.6%) Industry 23.0%, (25.7%) Generation capacity 30 September 2012 Hydro Pumped Storage Nuclear 1.4% 3.4% 4.4% 5.8% 41.7GW net maximum capacity 85.0% Coal In support of Gas 4

5 Significant progress in the build programme began in 2005 with completion in % R91.2bn R30.8 R118.5bn R72.3 In addition, we plan to spend more than R41 billion over the next 5 years to strengthen, refurbish and expand our Distribution network 60.0% R % 92.1% R31.8bn (2) R25.9bn 46.2 R19.6bn R12.7 R13.2 R1.5 R12.7 R18.1 R19.1 Medupi Kusile Ingula Return to service Transmission Completed Remaining Significant spend remains to be explored towards 2018 In support of 5

6 Contents 1 Eskom Overview Quick Facts & Figures Procurement Positioning in context Centres of Excellence - the evolution of a new aligned organisation Operating Model and partnering as a strategic advisor Some tangible benefits of an aligned organisation Concluding Recommendations

7 The context within which procurement occurs is critical if alignment with C-level executives is to be achieved Procurement centre of excellence focuses on corporate procurement & supply chain strategies, strategic commodities, best practices, knowledge sharing, etc. while leaving tactical execution to each business unit Procurement in a multidivisional organisation where each division has relative autonomy on the execution of procurement activities Centre-led One common procurement organisation managing one procurement system for all procurement needs across divisions of a company in a wide geography Decentralised Centralised 7

8 Procurement & Supply Chain Historic View Eskom s decentralised procurement approach which introduced a number of misalignment challenges Line Functions Corporate Functions Executive Generation Transmission Distribution Customer services Human Resources Finance Corporate Affairs Research & Development Other Finance Finance Finance Finance Corporate Procurement & Supply Chan P&SCM P&SCM P&SCM P&SCM Historically corporate procurement & supply chain was a sub-function of finance Line functions at divisional and site level had procurement teams with autonomy Various instances of the ERP system with various master data sets e.g. vendor master Procurement systems and processes were not standardised across the various business units Developmental imperatives were fragmented with limited strategic direction Very limited strategic influence on strategic stakeholders outside of procurement 8

9 Some implications of the decentralised procurement approach that has been historically part of the Eskom approach Symptoms Inconsistent application of policies and best practice Little leverage of purchasing power, limited focus on savings Perceived inefficiency in procurement process Gaps in supplier and local development management Representative quotes Our systems and processes permit us quite a lot but we are not using them appropriately We are not even sure where a lot of our spend is going Because buyers do not complete the reports appropriately the process is held up Suppliers play one division against another Root causes No SLAs in place Divisional silos and non standard tools e.g., cataloguing Functional KPIs not optimising supply chain KPIs not standardised and not strictly enforced Staff mindsets indicate lack of motivation Skills not meeting requirements Mindsets of procurement staff are not customer centric Insufficient IT support and/or not used effectively 9

10 Contents 1 Eskom Overview Quick Facts & Figures Procurement Positioning in context Centres of Excellence - the evolution of a new aligned organisation Operating Model and partnering as a strategic advisor Some tangible benefits of an aligned organisation Concluding Recommendations

11 The Eskom context can be described by three burning platforms that needed strategic response and interventions in a balanced manner Increasing infrastructure requirements 1 Socioeconomic development HOW DO WE OPTIMALLY MEET THE REQUIREMENTS THROUGH PROCUREMENT 2 3 Regulatory environment 11

12 A Corporate Structure that speaks to addressing the organisational context has evolved - centre of excellence approach is the core driver New organisational structure created to support our new strategy and purpose New executive management committee established to support the Chief Executive and ensure that the strategic imperatives are executed EXECUTIVE Chief executive Office of the chief executive Internal Audit Generation Transmission Distribution Customer services Human Resources Finance & Group Capital Technology & commercial Enterprise development Sustainability Line functions Service functions Strategic functions Line functions to focus on operations and on creating value Service functions to safeguard assets, provide expertise on day-to-day standardised services and leverage synergies in the organisation Strategic functions aim to bring about step changes in performance and provide broader strategic support to the group 12

13 Contents 1 Eskom Overview Quick Facts & Figures Procurement Positioning in context Centres of Excellence - the evolution of a new aligned organisation Operating Model and partnering as a strategic advisor Some tangible benefits of an aligned organisation Concluding Recommendations

14 Creating a centre-led procurement organisation with ExCo was initial step to dealing with our challenges whilst engendering the stakeholder advisory role Group Chief Executive Group Executive T&C Support Function HR IT Finance Legal Office of the GE Procurement RISK and GOVERNANCE Project Sourcing Commodity Sourcing Primary Energy Sourcing Tactical Sourcing Supply Chain Ops Supplier Development and Localisation Business Enablement 14

15 At the formation of this centre-led organisation we set out a high level journey plan April months Fix the basics Finalise job gradings and recruit capacity Formalise and standardise SLAs between Group Commercial and divisions Finalise Group Commercial KPI dashboards Finalise communication plan Drive process speed, conformance, savings and service delivery months Standardise and integrate SAP integration and data clean up Skills development in processes and systems Standard and process compliance months End-state: One Eskom Detailed operating model with smooth processes, data transparency and standardised tools Continuous improvement through performance dialogue 15

16 In order to deliver on the articulated requirements a consolidated mandate was designed to ensure accountability across the board Mandate of Group Commercial Create a Group Commercial organisation with clear line of sight over all external spend (incl subsidiaries) incurred, which enables Eskom to achieve world class capabilities and performance in the areas of Procurement Inventory management Warehousing and logistics Supplier management and development Contract negotiations and establishment by providing an appropriate platform for effective and efficient performance to ensure the right product/service at the right time without causing production interruptions Group Commercial will achieve its objectives to provide guidance to the divisions by creating appropriate Governance Systems Processes Procedures Compliance In addition, it will create a centre of excellence to oversee, execute and optimise transactions on behalf of divisional requirements in areas where Eskom can obtain scale benefit through consolidation or in areas where complexity of these transactions require specialist support 16

17 The centre-led approach has a compelling end-state vision reflects what is best for Eskom in the current and future context ONE ESKOM Establish Eskom as a single procurement entity Minimise the total risk to the business by ensuring standardisation of procedure and process across the organisation CUSTOMER CENTRIC and CENTRE-LED Earning the right via performance to be the service provider of choice Enhance Eskom s efforts in local development COST EFFECTIVE Focus on continuous improvement and internal efficiency HIGH PERFORMANCE CULTURE THAT ATTRACTS TALENT Enhance skills within the commercial environment Drive accountability within the commercial function 17

18 The business operating Model is strongly influenced by the understating of the customer requirements as a basis for service definition Customer Service principles Execution integration between Group Commercial Output Group Commer cial Tactical Sourcing Commodity Sourcing Project Sourcing SCOPs Business Requirements Business Enablement Delivery of service End-user needs Risk & Governance SD & L The new organisational setting sets procurement as a strategic adviser to end-user department in defining the requirements Group Commercial have defined the roles and responsibilities for each function. Going forward, the business needs to focus on enhancing integration and driving operational improvements Focus on the following Speed of delivery Quality of service Compliance SOURCE: Team analysis 18

19 The business operating model is underpinned by a business partnering methodology to ensure proximity of procurement as a strategic advisor Customer Interface (for strategic stakeholder advisory) approach The Customer interface is owned by dedicated business partners, ensuring 1- to-1 points of contact, and with support and subsequent service provided by all Functions to strengthen it SD&L Risk and Governance Direct support and service Interface with End-user facilitated by Business partner End users Business Partners Business Enablement SCOPs Project Sourcing Commodity Managers 19

20 ...and improved interaction and collaboration between Functions will drive enhanced Execution Excellence and overall performance Increased interaction and utilisation of cross-functional teams, and the provision of projects methodology & relevant team training Increased interaction through regular reviews and forums: new contract opportunities and compliance to contracts Insights and intelligence on suppliers, markets, TCO and spend: on/off-contract and contract opportunities Project Sourcing SCOPs Commodity/Tactic al Sourcing Business Partners Business Enablement Supplier Development and Localisation Group Commercial* The existing operating model ensures delivery. Impact will be as follows: - Better organisation of the interface with End-users - Augmenting of interaction between functions - Enhanced effectiveness of execution functions Effective warehouse and inventory management in with demand forecasting and supply planning Service delivery to Endusers; extensive interaction with suppliers at transactional level Innovative solutions to create local industries and jobs: Successes and issues in local development and possible implication for commodity strategies * Risk and Governance support Group Commercial, guiding risk management and governance fora across all functions 20

21 Contents 1 Eskom Overview Quick Facts & Figures Procurement Positioning in context Centres of Excellence - the evolution of a new aligned organisation Operating Model and partnering as a strategic advisor Some tangible benefits of an aligned organisation Concluding Recommendations

22 Alignment between procurement and executive level has caused significant shifts that have inherent benefits Economic Development B-BBEE attributable spend, R billion B-BBEE attributable spend, % Electrification, homes connected Corporate social investment, Rm Jobs created through capital expansion projects cumulative[1] Eskom trainees / bursars (pipeline) Closer Customer Engagement Closer and robust customer engagement Ability to capture customer plans earlier on and develop robust procurement strategies Monthly business partnering sessions ensures a problem solving culture Enhance customer centricity amongst procurement professionals 22

23 Alignment between procurement and executive level has caused significant shifts that have inherent benefits Standardisation Process Control Manuals developed to standardise procurement processes One SAP ERP platform creating ease of engagement with internal and external stakeholders e.g. one vendor master Single approach to Supplier Development & Localisation as defined in an ExCo approved strategy & implementation plan Procurement policy and procedure converged into a single area of custodianship Spend Visibility & Efficiency Gains The procurement organisation has gained visibility of trends and patterns in order to enhance the strategic advisory role to stakeholders Significant cost savings have been achieved to date with more than R3bn audited savings in FY13 Visibility on the efficiency of the procurement staff across the board has led to increased efficiencies albeit marginal 23

24 Contents 1 Eskom Overview Quick Facts & Figures Procurement Positioning in context Centres of Excellence - the evolution of a new aligned organisation Operating Model and partnering as a strategic advisor Some tangible benefits of an aligned organisation Concluding Recommendations

25 Concluding Recommendations Our experience indicates that migration from a decentralised to a centre-led procurement organisation has allowed the procurement to be aligned to the context of the organisation The centre-led organisation allowed us to increase the profile of procurement to the ExCo level which structurally allowed for alignment A compelling business model coupled with a business partnering methodology has allowed procurement to be close to the stakeholders and thus be relied upon for strategic advice on procurement Alignment has been further entrenched through the incorporation of procurement deliverables in all C-level executives performance contracts Challenges continue to exist at lower levels on alignment to the new method of doing business however change management is assisting in bringing on board the remnants within the organisation Challenges continue to exist on turnaround times as well as lower levels adherence to new organisational set up 25

26 Thank you